TaxTMI 
TaxTMI 
1998 (2) TMI 58
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....llowed the assessee to reside in the same building of rent having agreed to provide him with rent-free quarters. During the previous year ended on March 31, 1980, relevant to the assessment year 1980-81, the assessee occupied the house at Alwarpet, Madras, is an employee of Addison Paints and Chemicals Ltd. The assessee in the assessment proceedings for the assessment year 1980-81, admitted the value of the perquisites from the rent-free quarters at Rs. 6,000 which was the rent actually paid by Addision Paints and Chemicals Ltd. to Amalgamations Ltd. The Income-tax Officer, however, invoked the provisions of rule 3 of the Income-tax Rules and determined the perquisite value of the rent-free accommodation as under : Perquisites in respect of rent-free accommodation : Perquisites in respect of rent-free accommodation : Rs. ....
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....ation at Rs. 54,000 being 100 per cent. of the assessee's basic salary on the ground that the annual value of the property was estimated at Rs. 60,000 in the assessment proceedings of Amalgamations Ltd. The assessee went on appeal to the Commissioner of Income-tax (Appeals), Madras, challenging the addition made towards the value of the perquisite towards rent-free accommodation. The Commissioner (Appeals) found that the annual rental value of the property was estimated at Rs. 60,000 while dealing with the appeal by Amalgamations Ltd. and applying rule 3(a)(iii) of the Income-tax Rules, he upheld the value of the perquisite at Rs. 54,000 adopted by the Income-tax Officer and dismissed the appeal preferred by the assessee. The assessee went on further appeal before the Income-tax Appellate Tribunal and the Tribunal, following its earlier order rendered in the assessee's own case for the assessment year 1974-75 in 1. T. A. No. 1931/ Mds. of 1976-77 held that the provisions of rule 3(a)(iii) of the Income-tax Rules are directory and have no application when the accommodation was hired by the employer and in such a situation, the rent annually paid by the employer for hiring the ....
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....t the Tribunal has come to a correct conclusion that Rs. 6,000 which is nearer to the value determined by the corporation authorities should be adopted as the value of perquisite on the facts of the case. We have carefully considered the rival submissions of learned counsel for the respective parties. Section 17 of the Act defines the expression, "salary" to include perquisite and the word, "perquisite" is defined under section 17(2) to include the value of rent-free accommodation provided to the assessee by his employer. Under section 295 of the Act, the Board is empowered to make rules to determine the value of any perquisite charge able to tax under the Act in such a manner and on such basis as appears to the Board to be proper and reasonable and, consequently, the Board framed the Income-tax Rules and rule 3 of the Income-tax Rules, provides for the valuation of perquisites. Rule 3 deals with three types of situations in determining the value of perquisites. The first situation dealt with by rule 3 is with regard to the accommodation provided by the Government or any body under the control of the Government. The second situation dealt with by the said rule is with regard to ....
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.... (2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other house-hold appliances and air-conditioning plant or equipment) calculated at 15 per cent. per annum of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefor . . . Explanation 2.---For the purposes of sub-clause (iii), the fair rental value of accommodation which is not furnished shall be the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher." Rule 3 of the Income-tax Rules, provides that the value of the property shall be determined in accordance with the rules and the expression, " shall" used in rule 3 clearly indicates that the rule 3 should be applied in the cases covered by the said rules. The Appellate Tribunal placed reliance on the expression, "ordinarily" in rule 3(a)(iii)(A) to come to the conclusion that the rule is only directory in nature and, therefore, the rule has no application where a house was taken on lease by the employer and provided to the employee free of rent. In our opinion, the vi....
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.... to determine the value of the perquisite in all situations. It is an immaterial consideration whether the building was owned by the employer or taken on amount by the employer for the proper application of rule 3 of the Income-tax Rules, and in our view, in both the situations, rule 5(a)(iii) will apply as there are no limiting expressions found in rule 5 to make it applicable only in the case of a property, let out by an employer to its employee of the property owned by the employer and in the absence of any restriction found in rule 3, we are of the opinion that the provisions of rule 3 would cover both the situations and rule 3 has strictly to be followed in determining the value of the perquisite. In Krishan Gopal v. Prakashchandra, AIR 1974 SC 209 ; 2 SCR 206, the expression "ordinarily" was considered by the Supreme Court when it dealt with the provisions of section 80A of the Representation of the People Act, 1951, and the Supreme Court considering the expression "ordinarily" found herein held as under : "It is plain that sub-section (2) does not confer jurisdiction to try an election petition. Such jurisdiction is conferred by sub-section (1) of section 80A upon the ....
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....10 per cent. of the salary fixed in rule 3(a)(iii) of the Income-tax Rules, should be further increased. In our view, that is the purport of the expression, "ordinarily" employed in section 3(a)(iii) of the Income-tax Rules and hence, we are unable to uphold that order of the Appellate Tribunal that the expression, "ordinarily" means that the rule itself need not be applied and the value of the perquisite should be the actual rent paid by the employer. If such a view is accepted, it would lead to non-application of the rule itself, which is not warranted on the fair reading of the rule. It is no doubt true that the application of rule 3 of the Income-tax Rules may cause undue hardship in certain cases to the employee-assessee as by the process of evaluation of the value of the perquisite in the manner provided under rule 3 the ultimate tax liability on the employee may exceed the total amount of salary of the employee. In our opinion, the hardship cannot prevent the operation of the rule. There is an oft-quoted observation that income-tax and logic are strangers. We cannot construe the rule in such a manner which prevents its application and irrespective of the hardship, the pro....